Time & Expense of Failed Bad Faith Set-Up
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When a seriously injured person is injured by a person with a policy providing minimal limits the plaintiff’s lawyer will invariably attempt to set up the insurer for a bad faith case by making a policy limits demand with a short period of time to respond. In David Grant Orndorff v. Erie Insurance Exchange, No. 1318-2021, Court of Special Appeals of Maryland (November 21, 2022) Mr. Orndorff had a leg amputated as a result of an accident and sought to set up Erie Insurance, the other driver’s insurer.
David Grant Orndorff (“Mr. Orndorff”) was seriously injured when the motorcycle he was riding struck another vehicle attempting to make a left turn. The driver was insured by Erie Insurance Exchange (“Erie”) under a policy with a liability coverage limit of $30,000. Five months after the accident, Mr. Orndorff rejected Erie’s offer of its insured’s policy limits in full settlement of his claims against the insured. Two years later, when Mr. Orndorff sued Erie for bad faith in failing to settle sooner, the Circuit Court for Prince George’s County granted summary judgment to Erie.
Two days after the accident, on October 17, 2016, the driver of the other vehicle (Erie’s insured) reported the accident to Erie. Erie then assigned a claims adjuster who began a thorough investigation of the claim the next day.
One week into the investigation, on October 25, 2016, the claims adjuster received a message from Mr. Orndorff’s retained counsel requesting that all correspondence go to her. On November 3, 2016, the claims adjuster reviewed the accident report. The report indicated that Erie’s insured was cited for “failing to yield right of way” and that Mr. Orndorff had “exceeded the speed limit” and thereby contributed to the accident. The adjuster informed Orndorff’s counsel:
Erie has received the police report which indicates your client contributed to the accident by speeding. I would suggest he have his own insurance company handle if he has not done so already. I am trying to reach the witness to confirm our final liability decision but as MD is a contributory negligence state, your client may be barred from recovery against our insured.
Maryland has not adopted comparative negligence. If an injured person contributes to the accident – for example by speeding – he or she cannot recover anything because of his or her contributory negligence.
On November 8, 2016, thirty-four days after the accident, Mr. Orndorff demanded that Erie settle his claim” . . . for the full insurance policy, or any and all insurance policy or policies covering your insured for this accident.” Mr. Orndorff (perhaps as part of a plan) did not supply any of the requested documents or description of his injuries that Erie said were necessary to determine liability and settle the claim. Mr. Orndorff indicated he would release Erie’s insured from liability if Erie delivered a check no later than 5 p.m. EST on December 8, 2016.
On November 21, 2016, Erie denied Mr. Orndorff’s claim because its investigation showed that Mr. Orndorff was speeding and contributed to the accident.
Mr. Orndorff’s Motor Tort Complaint
On January 9, 2017, Mr. Orndorff sued Erie’s insured in the Circuit Court for Prince George’s County and later served Erie’s insured. On January 30, 2017, Mr. Orndorff’s counsel emailed the claims adjuster that all prior settlement offers were withdrawn and that its insured had been served.
On March 17, 2017, Erie, through the attorney assigned to represent its insured in the motor tort suit, offered to settle Mr. Orndorff’s claim for the full limit of the insured’s policy. On April 26, 2017, having not heard from Mr. Orndorff, Erie reiterated its policy limits offer to Mr. Orndorff.
Mr. Orndorff’s motor tort suit having been bifurcated between liability and damages, a jury found Erie’s insured liable for Mr. Orndorff’s injuries. Specifically, the jury found that Erie’s insured was negligent, and that Mr. Orndorff was not contributorily negligent.
The Liability-Only Trial Aftermath
On October 27, 2017, Erie again offered its insured’s policy limits to settle Mr. Orndorff’s claim against Erie’s insured. Mr. Orndorff did not accept this offer.
Before the trial on damages Plaintiff’s counsel notified the circuit court that they had settled Mr. Orndorff’s claim with the entry of consent judgment against Erie’s insured for $2,870,000; an assignment of the insured’s claims against Erie (if any) to Mr. Orndorff; and Mr. Orndorff’s promises (1) to forbear on collection efforts while the assigned claims against Erie were pending, and (2) to file an Order of Satisfaction once litigation of the assigned claims (including appeals) was over
On October 15, 2019, Mr. Orndorff sued Erie claiming that Erie had acted in bad faith in refusing Mr. Orndorff’s November 2016 demand.
On March 29, 2021, Erie filed a motion for summary judgment arguing that it had acted in good faith (not bad) in attempting to negotiate a settlement of Mr. Orndorff’s claim within its insured’s policy limits.
What Plaintiff asked the Court to do is to allow plaintiffs to control bad faith in the sense that a plaintiff could go to the end with an insurance company. An insurance company could offer policy limits on the eve of trial and the – – in cases where they offered it at eve of trial, the plaintiff, under the circumstances, could reject it and go forward, get an excess judgment, and then come back, presumably on behalf of the insured, and say, “hey, they didn’t offer the policy limits before we got this judgment.”
The trial Court did not find bad faith and concluded there was no breach of contract by the insurance company to its insured. Erie offered its policy limits. It offered its policy limits well before any judgment was entered against Erie’s insured. It offered the limits well before any trial occurred. So, this claim could have been resolved at an earlier time by the Plaintiff. The Plaintiff elected not to accept the offer of the policy limits and chose to pursue its claim against Erie’s insured.
The appellate court decided that the insurance company should not be at the mercy of what the Plaintiff wants to do.
Genuine disputes can arise from “predicate” facts or from the inferences that may reasonably be drawn from those predicate facts. The motions court found that Mr. Orndorff made a demand on Erie to settle for its insured’s policy limits in late October or November 2016, a demand that Erie denied. This denial was not in bad faith because it was based on the information Erie had at the time. By March 17, 2017, Erie had gathered more information and “had come around” to the determination that its insured was liable. Erie offered its insured’s policy limits in full settlement, but Mr. Orndorff refused the offer.
Once an insurer undertakes to defend its insured on a claim, the insurer’s wrongful failure to settle the claim is a claim in tort, not contract. The possibility of liability in tort does not mean that an insurer must settle all claims against its insured.
An insurer does not have an absolute duty to settle a claim within policy limits, although it may not refuse to do so in bad faith. An insurer’s decision to reject a settlement will be in “good faith” if the decision consists of an informed judgment based on honesty and diligence.
The appellate court was aware of no case, and Mr. Orndorff cited none to the court, in which a jury was permitted to determine an insurer’s good (or bad) faith in settling (or not settling) a claim where, as in this case, the insurer offered its insured’s policy limits in full settlement prior to its insured being at risk of an excess judgment.
Even if Erie could be said to have acted in bad faith by denying Mr. Orndorff’s November 2016 demand, Erie’s subsequent offer of policy limits before its insured faced the risk of an excess verdict meant that Erie did not act in bad faith in attempting to settle Mr. Orndorff’s claim against Erie’s insured.
Ultimately the circuit court did not err in granting summary judgment in favor of Erie. Erie’s subsequent offer of its insured’s policy limits, an offer made well before its insured faced the risk of an excess verdict, foreclosed any claim by Mr. Orndorff, the insured’s assignee, that Erie had acted in bad faith.
Erie had a good reason to deny the claim because Maryland still follows contributory negligence rather than what most states have adopted: comparative negligence. Regardless, when it did further investigation Erie offered its full policy limits multiple times only to have the plaintiff turn the offers down and insist on going to trial on the tort claim. Eventually, the Plaintiff made a deal with Erie’s insured to agree to a $2,870,000 judgment it promised to not collect from the tortfeasor but only from his insurer. Mr. Orndorff received the $30,000 limit and cost Erie much to defend two lawsuits that did not need to be filed or tried. The court should have considered sanctions on plaintiff’s counsel.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org
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